1. The question referred to us by the Commissioner of Income-tax is as follows:
Whether on the facts found in this case it is open to the Income-tax authorities to require the petitioner, who is assessed under Section 23(4), to produce all the original accounts of the firm carrying on business outside British India.
2. The facts of the case are that the assessee, who resides, in British India, carries, on business in. Penang in partnership with another who is in Penang and that in respect of the partnership the assessee is entitled to a 4|5th share and the other partner in Penang to l|5th share. The Income-tax Officer called upon the assessee to produce all his account books, day books, ledgers, etc., of the Penang business. The assessee did not comply with the request. Before the Income-tax Officer he stated his inability to do so and he produced before him his l5th sharer who stated that he was unwilling that the assessee should produce the Penang account books, it is quite clear on reading the order of the Income-tax Officer and it is definitely so stated in the order of the Commissioner of Income-tax that this story was not believed by the Income-tax Officer and certainly, having regard to the fact that it: this partnership he is a 4|5th sharer, it does not saem to us to be at all likely that the l|5th sharer would have refused to produce the Penang account books if his partner had so requested. The whole story sounds a most improbable one and we think that the Commissioner of Income-tax has taken up the correct position in disbelieving the story.
3. The question to be considered here is, first of all, whether, when a foreign business is carried on by an assessee in British India, the Income-tax Officer is entitled to require the assessee to produce the books of his foreign business. On this point we are clearly of the opinion that the Income-tax Officer is entitled to do so.
4. The next point that arises is, what account books is he entitled to call upon the assessee to produce? The answer to this question obviously must be such account books as are necessary to enable the Income-tax Officer here either to check the return already made by the assessee or himself to form an estimate of the income of the assessee. In this case it is conceded by the assessee that the Penang books were relevant. Obviously they were because one of the things the Income-tax Officer has to consider was whether the remittances from Penang to British India came out of capital or whether they came out of profits made in the Penang business. If there were profits of an amount sufficient to enable the remittances to be made to British India, then the inference is that the remittances came out of profits. So the first thing the Income-tax Officer had to consider was whether any profits and, if so, to what amount had been made in Penang. Clearly for the purpose of deciding that question he had to have inspection of the Penang acconat books and by Penang account books we mean not only the ledger but also the cash and the day books.
5. The other question arising is whether, if the assessee does not produce the account books, the Income-tax Officer is entitled under all circumstances to make the assessment under Section 23(4) of the Indian Income-tax Act. We think that it has got to be shown that the assessee could comply with the order for the production of the account books. It clearly would not be right to say that the Income-tax Officer is entitled to call upon a person to produce account books which would not ordinarily be in the possession and control of that person. We think that the right view to take of the case is that where an Income-tax Officer calls upon an assessee to produce account books which ordinarily would be in his possession and control, then the assessee has got to show that he is incapable of producing them. Of course, if the Income-tax Officer calls upon the assessee to produce account books which would not ordinarily be in his possession and control, then the onus would He upon the Income-tax Officer of showing that the assessee could produce them but has failed to do so. In this case, for the reasons we have already stated, it is quite clear that the books were under the control of the assessee, that he could have produced them and that he failed to comply with the notice issued to him to produce them. Under, these circumstances the Income-tax Officer was quite entitled to make the assessment under Section 23(4) of the Indian Income-tax Act. The question referred to us is answered accordingly. The assessee will pay Rs. 250 costs to the Commissioner of Income-tax.